14 DAY TRIAL // Google, Amazon, Apple and many other companies can say goodbye to their tax breaks in Europe. Ireland’s Ministry of Finance has announced that it will put a stop to the “Double Irish” tax scheme that’s been at the center of one too many controversies.
The tax scheme enables companies to drastically reduce their overseas tax burdens. The fact that all these companies run their European operations via Dublin has annoyed quite a few governments who complain that they’re not getting all the taxes they should from the tech giants.
“I am abolishing the ability of companies to use the ‘Double Irish’ by changing our residency rules to require all companies registered in Ireland to also be tax residents. This legal change will take effect from the 1st of January 2015 for new companies. For existing companies, there will be provision for a transition period until the end of 2020,” said Michael Noonan, Irish Finance Minister.
Apple, Amazon, Google, Adobe, Microsoft and more will see themselves paying a lot more in taxes across Europe. Last year alone, Google is estimated to have cut billions off its tax bill.
Even though in 2014, Google’s revenue in the United States was placed at $60 billion, it only paid 15.7 percent in taxes, down from 21 percent, as the company used its overseas tax benefits to lower the numbers as much as possible.
Google itself admitted that the reason for its lower taxes in 2013 as opposed to 2012 is a result of more earnings realized in countries that “have lower statutory tax rules,” but also thanks to the federal research and development credit related to the American Taxpayer Relief Act of 2012.
ArsTechnica was reporting back in July that Google Ireland paid about 0.16 percent on its €17 billion ($21.5 billion) revenue of 2013, or in numbers – €27.7 million. An additional €11.7 billion (€14.8 billion) was spent on administrative expenses, which are royalties for other Google entities.
How the scheme works
What Google and all these companies are doing is incorporating in Ireland, but legally routing money through other jurisdictions, such as, for instance, the Netherlands. The companies then sell or license its foreign rights for intellectual property developed in the United States to a subsidiary in a country with lower tax rates.
Foreign profits that come in through this door, such as Google search and advertising technology set in place, are attributed to an offshore subsidiary rather than the Mountain View headquarters.
It’s not just these giants that will get affected by the new tax laws in Ireland, but also all companies that collaborate with them, a number that runs in the tens of thousands.